Bill Clinton Slams Antigovernment Zealots, Dodges Blame: Books

Bill Clinton, author of "Back to Work: Why We Need Smart Government for a Strong Economy." Photographer: Ralph Alswang/Random House via Bloomberg

Nov. 7 (Bloomberg) -- Retired American presidents are like
ex-spouses: You often wish they would just leave you in peace.

The sense of embarrassment can run deep with Bill Clinton,
the wonk-in-chief who dallied with Monica Lewinsky and pardoned
Marc Rich. So I felt some trepidation when asked to appraise
“Back to Work,” Clinton’s useful yet tainted prescription for
how the U.S. can create jobs for the future and pay off its $15
trillion in debt.

Clinton argues that the U.S. lost its way in the past 30
years because voters became convinced that all the nation’s
problems are caused by government -- “by taxes that are too
high, bureaucracies that are too big, regulations that are too
costly and intrusive.” The upshot was an era of deregulation,
rising inequality and financial irresponsibility that culminated
in the housing bubble.

“Almost all our economic growth was fueled by home
building, consumer spending and finance, all based on easy
credit and heavy leverage,” he writes. “We lost manufacturing
jobs every year.”

That quotation echoes dozens of books on the crisis, by
authors across the political spectrum. Yet Clinton’s argument
suffers from two troubling facts. One is that he occupied the
White House for eight of those 30 years and contributed to the
mortgage binge and deregulation he now derides. The second hitch
is that Americans had good reason to believe Ronald Reagan when
he made the famous antigovernment assertion that transformed the
U.S. political debate.

Great Inflation

“In this present crisis, government is not the solution to
our problem,” Reagan said in his first inaugural address in
1981. “Government is the problem.”

The crisis of the day was the Great Inflation, the wage-price spiral that drove U.S. inflation from negligible levels in
the mid-1960s to double digits in the early ‘80s. That episode,
far from being an accident, arose from a well-meaning attempt by
successive governments -- Democratic and Republican alike -- to
keep the economy permanently near full employment, as Robert J.
Samuelson says in “The Great Inflation and Its Aftermath.”
Government was a problem, however tempting it is to pin all the
blame on the 1970s oil embargo.

Clinton does put his finger on a deeper dysfunction that
warps U.S. politics and economics to this day. For all our
antigovernment bluster, we Americans never really wanted less
government spending; we just wanted lower taxes. The Reagan
administration thought it could force reductions in domestic
expenditures by cutting taxes; it soon discovered that both
parties wanted to keep spending. The result: “They simply
borrowed the money to do it,” Clinton writes. The age of large,
permanent deficits was born.

Rising Inequality

As you might expect, Clinton trumpets his own efforts to
eliminate the deficit with the Balanced Budget Act of 1997.
Never mind that deficits were already shrinking by 1997, thanks
partly to the tech boom. The more troubling issue is that income
inequality surged during the Clinton years, with the share of
national income going to the richest 1 percent of Americans
climbing to 15-19 percent in the late 1990s, as Clinton’s former
secretary of labor, Robert Reich, says in his book
“Aftershock.”

As wages stagnated, most U.S. workers struggled after 1980
to maintain a middle-class lifestyle. The response of
politicians on both sides of the aisle was “let them eat
credit,” as University of Chicago economist Raghuram G. Rajan
puts it.

Though Clinton hardly started this trend, he did contribute
to it. Consider his aggressive enforcement of the Community
Reinvestment Act and his enthusiasm for James A. Johnson, the
Fannie Mae chief executive officer who committed himself to
spending $1 trillion on affordable housing.

Glass-Steagall

This was, of course, an extension of a bipartisan
homeownership drive stretching back to Herbert Hoover’s days. So
we might excuse Clinton for succumbing to the craze. We might
even give him a pass for killing what was left of Glass-Steagall, the Depression-era act separating commercial and
investment banks. (He himself says CRA loans, some of which went
to small businesses, didn’t trigger the meltdown. As for Glass-Steagall, he argues that Federal Reserve rulings starting in the
1980s had already removed restraints on big banks wishing to
engage in both activities.)

What’s impossible to ignore is his administration’s
onslaught against Brooksley Born, the head of the Commodity
Futures Trading Commission who dared to suggest increased
supervision for over-the-counter derivatives. Clinton’s excuse
for not trying harder to regulate derivatives? The Republicans
wouldn’t let me.

Hands Tied?

“I couldn’t have done anything about it, because the
Republican Congress was hostile to all regulations,” he says.

Really? Were all the president’s men, including Treasury
Secretary Robert Rubin and his deputy Lawrence Summers, obeying
Republican orders when they savaged Born’s modest proposal?

This book presents page after page of intelligent
suggestions on how the U.S. can cut its crippling debt, create
new jobs and get “back into the future business.” I found much
to agree with, notably Clinton’s proposals for debt forgiveness
for the almost one quarter of U.S. mortgage borrowers who owe
more than their properties’ values -- an idea gaining support
among many economists and investors.

I share Clinton’s frustration with ideologues who say the
answer to every problem is less government. It’s not: Consider
the Marshall Plan or Dwight Eisenhower’s Interstate Highway
System. I just wish Clinton didn’t pretend he had nothing to do
with the double bubble that ended in the Great Recession.

“Facts,” said John Adams, “are stubborn things.” Even
for a nimble thinker like Clinton.

“Back to Work: Why We Need Smart Government for a Strong
Economy” is published by Knopf in the U.S. and Hutchinson in
the U.K. (196 pages, $23.95, 16.99 pounds). To buy this book in
North America, click here.

(James Pressley writes for Muse, the arts and leisure
section of Bloomberg News. The opinions expressed are his own.)